LO and Pods from 2+2
Moving this to HF forum. Hi - I'm entering 4th year of 2+2 and am beginning to look at moves to a HF / public equities. Used to use this forum all the time and spent a few hours on it today for the first time in a while reading posts on this topic. My views tend to align with the general consensus I've observed on this site today (which surprised me but is similar with what I've observed anecdotally) and I want to go to either (i) a really good pod team or (ii) a really good LO seat, while avoiding the 95% of SM funds in the middle. I am shocked by the anecdotes that I've heard in the past year of people leaving "top" SMs & private shops for these two options and its where I want to be as well. I think this is where good, sustainable returns are (pods) or long stable careers (LOs) are.
My questions are:
1. What does the comp over the first ~3 years at places like these typically look like for someone like me with ~3-4 YoE out (e.g., would I even get a raise going to either and what is the expected discount at a LO)?. Assume C / P72 for pods and places like Ruane / Select / GQG for LO?
2. Given I care about a long-term career, what is the promotion / retention rate ~5 years out at these two places? Even if at a LO you aren't technically "promoted" or independently risk-taking in five years, what % of people who start at my theoretical entry point would still tend to be there in five years? What % of people are actually still in the MM world 5 years later?
3. What are the questions / factors you would be considering to discern what makes a good team at a pod or LO shop?
Thank you!
Ruane, Select and GQG are NOT the top LO seats. LO is complete opposite of pod in terms of investment style. How are you interested in both?
This is the 3rd or 4th post I’ve seen saying Ruane / Select are top LO seats. Since when are those even close to the top seats? Oh, I forgot, they have analysts that came from GS + Blackstone KKR Apollo profiles, so therefore they MUST be the best seats among all LOs, obviously. You guys are morons
The best LO is either Capital group or Wellington.
Would you ever consider a pre-MBA role at either of those places coming out of 2+2? Even compared to [Ruane / Select] where you wouldn't be pushed out to bschool / have to fight to stay?
Not sure I follow; you're asking if it makes sense to do capital group / wellington after 2+2 for an additional 2 years, and then to do an MBA after year 6? So 2 (IB) + 2 (PE) + 2(LO) + 2 (MBA)? That sounds like overkill
The big LOs won't hire someone from PE (at least that's what I've seen). They typically want to hire from MBA, other LOs, HFs, or undergrad/whatever junior analyst program they have for guys coming out of IB. I'd be pretty surprised if they hired someone with 4 years of experience that hadn't worked in public markets previously.
I'm not saying Ruane Select are bad firms. But if you're going to talk about the best/top LOs, they're not in that category. Not even close. And you can definitely be pushed out of those firms too. A partner at a trillion $+ private LO will make multiples of what a partner at one of these tiny "leanish" LOs makes.
Doesn’t select charge HF fees? Or at least an incentive
yes
No look at website
why are we acting as if Ruane and Select are similar? RCG has posted a decade of consistently terrible performance, has faced significant outflows, and is becoming increasingly subscale (edit - $16b). As far as I can tell SEG performance has been strong, fundraising has been good, and scale is good ($40b).
I agree that capital, wellington, d&c, harris are the best seats in finance - they are a cheat code. But (while I am not close to either fund), it seems to me that there is a world of difference between SEG and RCG, and that the former is a very very high quality seat. My impression is that while capital is a 100th percentile seat, select is ~97th. Eager to hear any pushback you have on this, as I am not intimately familiar with either fund in question.
This had been my impression on SEG, would love to hear pushback if that's not the case.
Harris?????????? WHAT? Lol
Ignore my title, I work at a top LO as an RA. Ruane and Select are only top on this forum, but I wouldn't personally work there. They are considering great on this website because of the backgrounds of the people hired to work there, not because of investment performance. Doesn't make sense career-wise imo to implement the same strategy as >$500bn LOs, with significantly less resources, job stability, scale, and worse LT secular prospects for 10-30% more compensation.
There are a lot of 2+2+2s at my firm, with the last 2 being MBA. There are no 2+2s -> analysts at the firm. If LO is your desire, MBA is the only way you'll break into a reputable one.
For pods, anyone will consider you right now and compensation at the start might be a slight haircut depending at what PE firm you're at, but that haircut goes away quickly if you're good.
If I were in your shoes, I'd bite the bullet get the MBA and go to an actual mutual fund as an analyst. The pod route doesn't make as much sense for your career imo given that you've done 2+2 successfully
Got it, that's very helpful - do you think the tradeoff of going to B-school, which means lost income and taking on the risk of even landing one of those top jobs is worth the risk/tradeoff vs. the opportunity to get an offer over the next year at a LO like Ruane / Select with no lost earnings / no risk of getting the job later?
I'm just in RA, so my my perspective is slightly different and I'm a bit jaded strictly because the nature of my LO. I no longer have interest in an MBA to become an analyst, but the vast majority of LOs prefer MBAs, even over their RAs (including mine). Personally, I have not seen anyone come into my firm as an analyst without an MBA or being an analyst at another LO (most of which have MBAs). I think it's beneficial LT in this industry to have one; the reason why I'm jaded is because I don't think it makes sense to send me to b-school for two years since it won't make me a better investor rather than spending those two years in the job. So, effectively I'd be paying 200k to be worse at the job, but be more qualified strictly because that's how things are, not because it makes sense.
This doesn't apply to you because you have no relevant experience in the eyes of a LO (most of our MBA summer analysts don't have finance or investing experience, the firms don't really care). The price you're going to pay will quite literally be pennies compared to what you will make over the LT at the firm. 7-10 years post-MBA and you'll be paying your MBA tuition yearly for your nanny/au pair and kids private school tuition (it's the lifestyle this job affords you).
Given your 2+2 background and what I know about the lifestyles of our analysts vs. places like RCG/Select, I just don't think it's worth it for you to go to a RCG/Select when you've worked hard to get into HSW, take a 2 year vacation and make just as much for half the stress. The analyst job at any of the large mutual funds is second to none in the public markets. I can only speak to H not SW, but the competition for a spot if you can get into at least W is not that fierce, the interest for LOs at H is not strong, much more competitive at Booth and Columbia.
Why is the MBA so important?
MBA is important for optics. Need to remember these LO funds are marketed to retail investors. Search up any fund and you will find a full bio and resume of every PM. This is the LO way of selling unsophisticated investors on investment performance. "The PM went to HBS and has a CFA, I'm sure he knows what he's doing"
Seriously why do you want to work at ruane? What is it exactly about that place that you have such a hard on about?
investment firms live and die by their track record. Nothing else matters. Ruane’s track record is atrocious. Any firm where you have to look back to inception to be in line with or barely beating the index is not a place you want to work at. Why? Investing is an apprenticeship business. What are you going to learn there exactly? How to underperform a massive bull market for 20 years? What’s the point of doing all that research if you don’t make any money. Firms like that should just turn into sell side shops and publish reports.
if you think you’re a long term investor, then do the long term framework on working at ruane. What do you think happens when the principals retire. You think the firm in 5-10 years is going to be better off than it is today? You think you can work there and in 5 years be able to raise a fund? lol. If that’s not the conclusion you got to, then yes you are a perfect fit for ruane
Agree with all your points, but there is something to be said about a firm that’s lived on long after its founders have gone away and still stands at $10B AUM after underperforming the market in one of the longest bull markets. Yes, I know not all of that is in Sequoia, but they are all effectively the same vehicle with perhaps the exception of Conifer. The reality of the situation is that they were able to market themselves to a group of LPs / retail investors to make their business viable in these periods of underperformance. Say what you want about how they got there, but that’s the end of result. Maybe think to yourself what people are solving for in a career vs. thinking everyone wants the same thing as you. From the way you sound, you seem to think you have everything figured out, but clearly there are some in the world that disagree so maybe you should also take some time to reflect where you’re wrong.
I don’t have it all figured out. But serious question: what exactly is the appeal?
yes ruane still manages a decent amount of money. But that is a reflection of the LO business model. You can say the same thing about a dying PE fund, or most smid size LO funds. Their death is inevitable but there’s a super long tail to these things given how the biz models work. If you already work at one of these places, fine - I can see the aspiration to ride it out and clip a decent paycheck while you pretend to play investor during your day job. But why would you aspire to go to one of these places as a young professional? What’s the point? Everyone would agree that Ark has a terrible track record. Yet…it’s still a functioning business and the CIO is still regularly being interviewed on CNBC. …why would you want to start your career there though when there’s so many other options?
I think the people who hold up Ruane as the gold standard in LO just don't know very much about the industry... 460bps of annualized underperformance over a decade with shrinking AUM is not what the gold standard looks like...
I don’t think anyone thinks it’s the gold standard.
I work at a LO and been in the industry >10 yrs. Never heard anyone speak of Select Equity or Ruane even once. Total WSO/college call outs. Agree with another poster that the best seats within LO are senior roles at the scaled managers incl Wellington, T Rowe and Capital. You want to be where the $ is, and hopefully a shop that is GROWING assets. Working at a manager that is shrinking as a jr to mid employee (beyond a temporary stay) is like buying equity in a highly leveraged company that is going BK. You aren't going to get paid betting your career on it (ie. hopin to get promoted into a senior seat and getting a piece of the economics). The sr employees are the creditors milking the current base and clipping their coupons but with flat to down assets there is negative money for new partners. Sso no, dont rely on some IP/AUM math and think you'll get great comp, economics go to the partners that have been there for 2 decades.
There is constant discussion of where the beat seats are, and i would rank it as such (borrowing from another investor): Scaled SM > Scaled LO > Large team MM > unscaled SM > small team MM > non-scaled LO
Where do you see sell-side research falling here?
Recently seen a pickup in Big 4 MM analysts pivoting to the bulge bracket sell-side research... imagine they couldn't land a LO here and didn't want to downshift into a non-scaled platform
How do you define scaled SM vs. unscaled? and scaled LO vs. unscaled LO? (I assume the scale bar for LO and HF are very different)
Generally for LO, maybe >500~750 million AUM/IP would be considered very scaled. By IP, I mean research / portfolio management / trading folks. There are probably fewer than 15 such shops in the industry.
For SM, I’d consider any shops with >75 million AUM/IP very worth joining. Pre-leverage of course.
Haven't posted here for probably 3-4 years, and probably 3x in the last decade, but was cleaning up gmail inbox and saw some notifications. The website was beneficial to me early in my career and want to add some color. For context, I have spent my entire career at a SM, have had job offers from some of the "Top LO" names referenced below, and have friends that run books at Citadel, Millenium, etc
-Capital, Wellington, and PIMCO are probably a few of the only places in the world where the ceiling is higher than being a partner at Mega Fund PE with a lower discount rate. There are a limited number of seats, the capital base has been remarkably stable (growth in the SMA/Institutional/Subadvisory business has more than offset from shrinking mutual fund flows. The trade off is that there are politics, and in many ways you might not ever figure out if you are a good investor or not. Having several co-PMs running $100B+ makes it hard to really generate any alpha. I know career analysts makin $8M - $10M at LO managers that never had p/l responsibility. This is NOT the norm. Career analysts at most places make $300K - $800K.
-Ruane Cunniff is completely different organization than it was 15-20 years ago. Rick Cunniff died in 2014 and VRX blew up the SEQUX track record + the firm shortly thereafter. I have a lot of respect for the guys that stayed to restructure, but Bob Goldfarb got squeezed out and David Poppe works with a group of Canada now. Select Equity runs a much higher level of AUM in a much different style. Long-Only sub scale is a dying business (just look at the multiples for publicly traded long-only asset managers).
-The Single manager industry is totally bifurcated. There are institutions at scale, and hundreds of people running $50M - $500M trying to bridge the gap. And the institutions all have private books now that are huge piece of the capital. There are a few exceptions, but the stock-picking hedge fund with a celebrity PM era peaked in 2005-2010. The institutional seats are good seats if you can get them, and you probably get more responsibility at a younger age than at a long-only manager.
-I suspect we may be close to "peak pod". The amount of capital relative to talented people to manage it has some natural limit. If Millennium manages $80B the actual amount of gross exposure is over half a trillion. You can make PM a lot faster here but the discount rate on future cash flows is a lot higher.
The lifestyle and comp upside at pretty much all of these places is much better than banking or law. The lifestyle is probably better than PE with similar risk adjusted comp trajectory. Big picture, the best advice I could share is pick the people you work for very carefully, and make sure the work is interesting. If the difference between making $500K and $800K at the age of 27 matters a lot to you at 37, some serious mistakes occurred along the way. If you are lucky enough to be in a position to work any of these places, optimize for overall life satisfaction and the comp will work out. I know that is a lot easier to say once you've made it to the other side, but its true. Good luck...
One of the best comments on this forum. Thank you for your insight.
One quick question. How do you think about long-term prospects for analyst positions at scaled boutique LOs relative to Cap/Fido/Wellington? I am thinking funds/teams with >$20 billion total AUM and >$1 billion AUM/IP with a good track record and generally positive flows.
I think there are very few of these places left, and if its a boutique, the AUM tends to be tied a lot more to PM personalities. What happens to AUM at Oakmark when Nygren retires? Edgewood when Alan Breed retires? They all plan, and some have very talented people waiting in the wings, but right or wrong the AUM at these places tend to follow names. I think they are great places, but there isn't the institutional stability that a Wellington or Capital Group provides.
You’re saying the median career analyst at those firms (someone who’s been in the biz for 15-20 years and co-runs a fund with others) make 8-10m? Is that the median number or you’re saying the best of the best at capital Wellington (not the median) makes 8-10?
I can tell you anyone making $8-10M a year at Wellington either has a large sleeve they run and/or is a long time partner (thus accumulated a lot of partnership units for large annual profit payout).
Gray Fox is one of the only posters I have notifications set on for and he never disappoints.
How would you reflect on your SM time personally now having been offered the LO or pod path along the way?
I’m currently junior at a T1LO. I see all my friends at pod earning twice what I make.
Should I stick to it or try at a pod?
Another great post from the WSO OGs. What's the below mean?
"If the difference between making $500K and $800K at the age of 27 matters a lot to you at 37, some serious mistakes occurred along the way."
$300K of pre-tax comp is $150K of post-tax comp. If you have have a 50% burn rate, its an extra $75K in your pocket. Let's say it 3x's over the next ten years (hard to do post-tax), it is an extra $225K on your balance sheet at the age of 37.
If you can make a much better career decision that leads to exponential lifetime balance sheet growth at 27, but requires making $500K instead of $800k at 27, you should optimize for overall opportunity rather than short-term cash.
.
Rare Gray Fox sighting I love it. Are we lucky enough to get @BlackHat to chime in?
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